Thursday, July 27, 2006

So There!!

Recently Forbes Magazine ranked the top 10 “Most Overpriced Places in the US” with not one, but three Boston “metro” areas making the list.

Forbes took the approach of considering four key metrics, cost of living, job growth, housing affordability, and salary rank in order to arrive at their overall ranking.

All metrics were derived from statistics gathered by various sources such as Moody’s and the U.S. Bureau of Labor Statistics and when combined and ranked, resulted in the top ten areas that “had the highest cost of living, lowest salaries, least job growth and least affordable housing.”

Not surprisingly (at least to this blogger), the Boston area registered three times with Essex County earning the #1 rank, followed closely behind by Cambridge and Boston itself.

But, of course, in typical fashion, members of the Massachusetts Association of Realtors ignored the clear and simple facts that the article presented and instead have taken issue with the ranking, particularly with Essex County having topped the list.

In what HAS to be one of the most outrages responses to an editorial staff of a national periodical, MAR quickly retorted with the following “Letter to the Editors” of Forbes Magazine:

Dear Editor:

As residents of Essex County, MA., who also have the privilege of helping home buyers realize the American Dream everyday, we read your recent article on most overpriced places in the U.S. with interest, and found your rankings to be a bit curious and flawed.

Real estate, as you know, is about location, location, location, and this region – along Boston’s North Shore – features many quaint villages, a picturesque coastline, and a rich history with vast cultural and recreational amenities, which make it a very desirable place to live. The area also is home to a diverse population base, great schools, and lots of open space that give our communities a rural feel – assets you simply can’t put a price on.

Furthermore, it’s difficult even to fathom labeling the county a metropolitan area given its rustic flavor.

From the antique homes of Salem and Newburyport to the vacation cottages in Ipswich and Salisbury, and restored mill lofts of Lawrence and Haverhill to the horse farms in Boxford and Rowley, there are plenty of architectural styles and housing choices for people at all levels of the income ladder in Essex County. While it’s true that there are also a sizeable number of million dollar properties in the towns of Andover, Essex and Manchester-By-the-Sea, it’s also worth noting that more than one third of the 3,200+ homes on the market in Essex County in July were priced at or below the region’s median home price.

The real challenge in our area, and throughout Massachusetts, over the past decade has been the inability to produce enough new housing to meet demand, rather than finding buyers who can afford high-priced, luxury homes. A multi-layered permitting process and overly restrictive zoning and land-use regulations in many of our local communities has limited new residential development in the region for years, to the point where Massachusetts now ranks 47th in the nation in the number of new housing permits issued per capita.

This is a key factor you neglected to account for when compiling your rankings. In fact, when you add high land costs to the equation, as well as record low mortgage rates which resulted in two years of record home sales in our state during 2004-05, most would agree that there is plenty of economic justification to support home values in the area. To categorize the region as “overpriced,” we believe, is misleading and inappropriate given the market forces that have so strongly influenced our local housing market in recent years.

MAR, clearly taking the position of being “offended”, in an almost personal way, by the Essex County ranking, seems to suggest the following in thier response:

  1. The features of Essex County, including its “coastal villages”, “rich history”, “open space”, “rustic flavor” and other “assets you simply can’t put a price on” somehow erase or mitigate the fact that the area has the lowest salaries, least job growth, highest cost of living and least affordable housing.

  1. In an almost funny and perplexing point, MAR asserts that “it’s also worth noting that more than one third of the 3,200+ homes on the market in Essex County in July were priced at or below the region’s median home price.” Huh?? You mean it’s WORTH noting that 34% of the homes on the market are listed at or below the price at which 50% of the homes are supposed to be valued. Am I missing something??

  1. Somehow, low interest rates leading to “two years of record home sales” equates to “economic justification to support home values”.

  1. Simply categorizing a region by four key economic metrics is “misleading and inappropriate” especially given the significant “market forces” that so clearly justifies the overpriced region.

Clearly MAR’s response was downright silly, and possibly even symptomatic of the delusional state that many real estate professionals have found themselves in these days.

Forbes should, without a doubt, publish the response if not for the sheer humor of it, then as a “human interest” piece on what can happen to seemingly normal people when they are participants in an dramatic asset price bubble mania.